- Case Type:
- Case Status:
- Reversed and Remanded
- 19-1079 (8th Circuit, Sep 11,2020) Published
- Eighth Circuit reversed rulings of District Court (D. Minn) granting summary judgment on liquidating trustee's fraudulent transfer avoidance actions related to Ponzi Scheme clawback claims. District Court erred in applying Minnesota case law precedent to claims that did not apply to Minnesota statutory fraudulent transfer law and in awarding prejudgment interest under Minnesota law, rather than federal law. Genuine issue of material fact existed as to whether transferee received interest payments over multi-year period "in good faith and for a reasonably equivalent value."
- Procedural context:
- US District Court (D. Minn.) entered summary judgment in favor of chapter 11 liquidating trustee on avoidance claims. Defendants appealed to 8th Circuit.
- Thomas Petters perpetuated $3.5 billion Ponzi Scheme through Petters Company, Inc. ("PCI"). PCI purported to run a "diverting" business that purchased electronics in bulk and resold them at high profits to major retailers. Petters and associates persuaded individual investors to make secured loans to finance specific purchases of electronics for resale. In reality, PCI engaged in almost no purchase and sale transactions. Instead, it diverted the loan proceeds and used the proceeds of new loans to repay interest due on outstanding loans. When the scheme collapsed, Petters was convicted of multiple federal offenses and sentenced to a 50 year prison sentence. PCI filed bankruptcy. The liquidating trustee for the PCI Liquidating Trust in a consolidated chapter 11 bankruptcy filed more than 200 cases seeking to recover PCI's interest payments to early PCI lenders for the benefit of later lenders who lost their entire loans to the Ponzi scheme. The Trustee sued lenders Gus Boosalis, Steve Papadimos and Papadimos' wife, Chris Kanios asserrting claims under 11 USC 544(b)(1), seeking only to recover payments of interest to defendants. Between 1995 and 2001, Boosalis was paid over $3.5 million in interest. Following jury trial, jury found Boosalis liable for interest, plus prejudment interest of an additional $2.9 million. Between 1997 and 2006, PCI paid Papadimos and Kanios more than $3.7 million in interest. Following trial of the claim against Boosalis, the District Court granted summary judgment in favor of Trustee against Papadimos and Kanios, including prejudgment interest, in excess of $5.9 million.
- Loken, Benton, Kelly
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